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Poor Quality of Care May Trigger a False Claims Act Violation

Summer 2007 | Volume 2, Issue 2

Despite a doctor’s early attestation to “do no harm,” mistakes happen and the quality of health care is not always optimal. Traditionally, patients could seek redress for poor care through a private cause of action against a provider for medical malpractice. In recent years, an increasing number of cases are being brought against providers claiming that poor quality of care or lack of medical reasonableness for the care provided has triggered false claims for reimbursement under the False Claims Act. This newer level of exposure for providers requires that they use increased caution and oversight when certifying regulatory compliance or face the very real threat of litigation or government enforcement action.

Health Care and the False Claims Act

The False Claims Act (FCA) was passed by Congress in 1863 and signed into law by President Lincoln during the Civil War. This specialized statue was designed to punish profiteers who were defrauding the Union Army. The FCA empowered citizens to act as a “private attorney general” and file suit against any party found committing fraud while retaining a portion of the funds recovered.

In 1986 the FCA was substantially amended to combat fraud in the fields of defense and health care. As it stands today, the FCA imposes civil liability on any person who submits a claim (i.e. reimbursement, approval or payment) to the federal government and knows (or should know) that the claim is false. The FCA continues to authorize claims brought by private citizens, known as qui-tam realtors or colloquially as “whistle-blowers.”

In recent years this long-standing act has gained new traction and become a significant mechanism for penalizing Medicaid and Medicare fraud. In 1998, 61% of all qui-tam realtor cases under the FCA involved health care fraud. This percentage continues to increase, especially in light of the Deficit Reduction Act of 2005, which created financial incentives for states to enact their own false claim statutes covering Medicaid claims. As a result of this new and expanding legislation, individual actions, which would not constitute medical malpractice, could result in civil and criminal liability under the FCA and similar state statutes.

The authorization of qui-tam plaintiffs also increases the potential for health care claims under the FCA. These actions are often brought by former hospital employees and medical professionals who have an in-depth knowledge of the defendant hospital. This greatly increases the chance that a small departure from Medicare or Medicaid regulations, such as a testing procedure or an inaccurate treatment code, will be caught and prosecuted under the FCA. As a result, health care providers may find they have to impose a higher level of oversight on medical professionals to decrease the risk of civil and potentially criminal liability.

Legal Theory Behind Liability

Liability under the FCA derives from the regulatory certifications made by physicians and hospital administrators. Typically, physicians make the primary decisions as to what health services are reasonable and necessary for a patient. Such decisions are supervised by hospitals through utilization review mechanisms in conjunction with Quality Improvement Organizations. However, such mechanisms are no longer enough to prevent civil and criminal liability to the government and potentially private individuals.

Liability under the FCA can derive from a health care provider’s certification of compliance with Medicaid and Medicare regulations when they submit claims for reimbursement. For example, the Medicare statute states that “no payment may be made under [the Medicare statute] for any expenses incurred for items or services which …are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.” Because payment is expressly conditioned, a hospital impliedly certifies that treatment is “reasonable and necessary” when seeking payment or reimbursement. These certifications constitute a “claim” that is being made to the federal government.

Courts have found that signing a Medicaid or Medicare certification, as a precondition to payment, without regard to its truth renders it a “false” claim under the FCA. Specifically, claims have been found “legally false” when a party inaccurately certifies compliance as a condition to government payment. Claims have been found “factually false” when they include an incorrect description of goods or services provided, or when they request payment for goods or services that were never provided. Thus, a failure to meet the required procedure or standard of care at any point in the health care process (from the reception room to the administrative review) could technically violate federal regulations and potentially the FCA.

For example, in Illinois v. ex. rel Raymer v. The University of Chicago Hospitals, a qui tam action was brought by two former neonatal intensive care unit (NICU) nurses. The plaintiffs alleged that the hospital was knowingly “double-bunking” newborns in violation of state health and safety regulations. Thus, the hospital’s certification of compliance with all such laws and regulations for Medicaid payment allegedly violated the False Claims Act. The court analyzed the plaintiff’s claim and denied the hospital’s motion to dismiss.

Similarly, in Mikes v. Straus, a qui tam action was brought by doctor who was formerly a partner in the defendant’s medical practice. The plaintiff alleged that the defendants were inadequately calibrating spirometers, thus rendering the results so unreliable as to be false. The plaintiff contended that as a result of the unreliable tests, any forms submitted for Medicare reimbursement for spirometry services constitute a violation of the False Claims Act. The court, however, concluded that because the Medicare statute at issue did not “condition payment on compliance with its terms, defendants’ certification on the forms was not legally false.”

Important Policy Considerations

As FCA litigation continues to increase, competing policy concerns are evident. On one hand, there is a need to enforce Medicare regulations and ensure that the federal government is not being defrauded. In addition, allowing qui-tam claims provides doctors and nurses the opportunity to file suit when hospital administration won’t listen, therefore ensuring that patients receive the requisite and necessary level of health care.

On the other hand, the regulation of health and safety matters is primarily, and historically, a matter of local concern. Some argue that permitting qui-tam realtors to assert that the quality of care failed to meet medical standards would promote federalism and criminalization of medical malpractice, as the federal government or the qui-tam realtor would replace the aggrieved patient as a party to a legal proceeding. Beyond that, courts have expressly stated that they are not the best forum to resolve medical issues concerning levels of care. State, local or private medical agencies, boards and societies are better suited to monitor quality of care issues.

Moving forward, this new level of enforcement will require health care providers to use increased caution when certifying regulatory compliance, especially with Medicaid and Medicare regulations. In addition, health care providers will need to use additional oversight when monitoring quality of care and the medical necessity of procedures to reduce the chance of liability under the False Claims Act.

If you have any questions regarding the False Claims Act or other issues, please contact Sean Bosack (sbosack@gklaw.com or 414-287-9431); Thomas Shorter (tshorter@gklaw.com or 608-384-2239), or another member of the Godfrey & Kahn Health Care Team.

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